Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.5.0.2
Debt
6 Months Ended
Jun. 30, 2016
Debt Disclosure [Abstract]  
Debt
DEBT
 
As of June 30, 2016 and December 31, 2015, our debt consisted of the following (in thousands): 
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Long-term debt:
 
 
 
 
SPLNG
 
 
 
 
6.50% Senior Secured Notes due 2020 (“2020 SPLNG Senior Notes”) (1)
 
$
420,000

 
$
420,000

SPL
 
 
 


5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $7,959 and $8,718
 
2,007,959

 
2,008,718

6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”)
 
1,000,000

 
1,000,000

5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”), net of unamortized premium of $6,029 and $6,392
 
1,506,029

 
1,506,392

5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”)
 
2,000,000

 
2,000,000

5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”)
 
2,000,000

 
2,000,000

5.875% Senior Secured Notes due 2026 (“2026 SPL Senior Notes”)
 
1,500,000

 

2015 SPL Credit Facilities
 
832,695

 
845,000

CTPL
 
 
 
 
$400.0 million Term Loan Facility (“CTPL Term Loan”), net of unamortized discount of zero and $1,429
 

 
398,571

Cheniere Partners
 
 
 
 
2016 CQP Credit Facilities
 
450,000

 

CCH
 
 
 
 
7.000% Senior Secured Notes due 2024 (“2024 CCH Senior Notes”)
 
1,250,000

 

2015 CCH Credit Facility
 
2,730,340

 
2,713,000

CCH HoldCo II
 
 
 
 
11.0% Convertible Senior Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”)
 
1,109,165

 
1,050,588

Cheniere
 
 
 
 
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”), net of unamortized discount of $158,036 and $174,095
 
921,690

 
879,938

4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”), net of unamortized discount of $317,994 and $319,062
 
307,006

 
305,938

Unamortized debt issuance costs (2)
 
(245,810
)
 
(207,718
)
Total long-term debt, net
 
17,789,074

 
14,920,427

 
 
 
 
 
Current debt:
 
 
 
 
7.50% Senior Secured Notes due 2016 (“2016 SPLNG Senior Notes”), net of unamortized discount of $1,956 and $4,303 (3)
 
1,663,544

 
1,661,197

$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”)
 

 
15,000

Cheniere Marketing trade finance facilities
 
15,219

 

Unamortized debt issuance costs (2)
 
(1,287
)
 
(2,818
)
Total current debt, net
 
1,677,476

 
1,673,379

 
 
 
 
 
Total debt, net
 
$
19,466,550

 
$
16,593,806

 
(1)
Must be redeemed or repaid concurrently with the 2016 SPLNG Senior Notes under the terms of the 2016 CQP Credit Facilities if the obligations under the 2016 SPLNG Senior Notes are satisfied with borrowings under the 2016 CQP Credit Facilities.
(2)
Effective January 1, 2016, we adopted ASU 2015-03 and ASU 2015-15, which require debt issuance costs related to term notes to be presented in the balance sheet as a direct deduction from the debt liability, rather than as an asset, retrospectively for each reporting period presented. As a result, we reclassified $207.8 million and $2.8 million from debt issuance costs, net to long-term debt, net and current debt, net, respectively, as of December 31, 2015.
(3)
Matures on November 30, 2016. We currently anticipate satisfying this obligation with borrowings under the 2016 CQP Credit Facilities.

2016 Debt Issuances and Redemptions

2026 SPL Senior Notes

In June 2016, SPL issued an aggregate principal amount of $1.5 billion of the 2026 SPL Senior Notes. Net proceeds of the offering of approximately $1.3 billion, after deducting commissions, fees and expenses and incremental interest required under the 2026 SPL Senior Notes during construction, were used to prepay a portion of the outstanding borrowings under the 2015 SPL Credit Facilities, resulting in a write-off of debt issuance costs associated with the 2015 SPL Credit Facilities of $26.0 million during both the three and six months ended June 30, 2016. The 2026 SPL Senior Notes accrue interest at a fixed rate of 5.875% and interest on the 2026 SPL Senior Notes is payable semi-annually in arrears. The terms of the 2026 SPL Senior Notes are governed by the same common indenture as SPL’s other senior notes, which contains customary terms and events of default, covenants and redemption terms.

In connection with the closing of the sale of the 2026 SPL Senior Notes, SPL entered into a Registration Rights Agreement dated June 14, 2016 (the “2026 SPL Registration Rights Agreement”). Under the terms of the 2026 SPL Registration Rights Agreement, SPL has agreed, and any future guarantors of the 2026 SPL Senior Notes will agree, to use commercially reasonable efforts to file with the SEC and cause to become effective a registration statement within 360 days after June 14, 2016 with respect to an offer to exchange any and all of the 2026 SPL Senior Notes for a like aggregate principal amount of debt securities of SPL with terms identical in all material respects to the respective 2026 SPL Senior Notes sought to be exchanged (other than with respect to restrictions on transfer or to any increase in annual interest rate), and that are registered under the Securities Act of 1933, as amended (the “Securities Act”). Under specified circumstances, SPL has also agreed, and any future guarantors will also agree, to use commercially reasonable efforts to cause to become effective a shelf registration statement relating to resales of the 2026 SPL Senior Notes. SPL will be obligated to pay additional interest if it fails to comply with its obligation to register the 2026 SPL Senior Notes within the specified time period.

2024 CCH Senior Notes

In May 2016, CCH issued an aggregate principal amount of $1.25 billion of the 2024 CCH Senior Notes, which are jointly and severally guaranteed by its subsidiaries, CCL, CCP and Corpus Christi Pipeline GP, LLC (“CCP GP”, and collectively with CCL and CCP, the “Guarantors”). Net proceeds of the offering of approximately $1.1 billion, after deducting commissions, fees and expenses and incremental interest required under the 2024 CCH Senior Notes during construction, were used to prepay a portion of the outstanding borrowings under the 2015 CCH Credit Facility, resulting in a write-off of debt issuance costs associated with the 2015 CCH Credit Facility of $29.0 million during both the three and six months ended June 30, 2016. Borrowings under the 2024 CCH Senior Notes accrue interest at a fixed rate of 7.000%, and interest on the 2024 CCH Senior Notes is payable semi-annually in arrears.

The indenture governing the 2024 CCH Senior Notes (the “CCH Indenture”) contains customary terms and events of default and certain covenants that, among other things, limit CCH’s ability and the ability of CCH’s restricted subsidiaries to: incur additional indebtedness or issue preferred stock; make certain investments or pay dividends or distributions on membership interests or subordinated indebtedness or purchase, redeem or retire membership interests; sell or transfer assets, including membership or partnership interests of CCH’s restricted subsidiaries; restrict dividends or other payments by restricted subsidiaries to CCH or any of CCH’s restricted subsidiaries; incur liens; enter into transactions with affiliates; dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of the properties or assets of CCH and its restricted subsidiaries taken as a whole; or permit any Guarantor to dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of its properties and assets.

At any time prior to January 1, 2024, CCH may redeem all or a part of the 2024 CCH Senior Notes at a redemption price equal to the “make-whole” price set forth in the CCH Indenture, plus accrued and unpaid interest, if any, to the date of redemption. CCH also may at any time on or after January 1, 2024 through the maturity date of June 30, 2024, redeem the 2024 CCH Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2024 CCH Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.

In connection with the closing of the sale of the 2024 CCH Senior Notes, CCH and the Guarantors entered into a Registration Rights Agreement dated May 18, 2016 (the “CCH Registration Rights Agreement”). Under the terms of the CCH Registration Rights Agreement, CCH and the Guarantors have agreed, and any future guarantors of the 2024 CCH Senior Notes will agree, to use commercially reasonable efforts to file with the SEC and cause to become effective a registration statement within 360 days after May 18, 2016 with respect to an offer to exchange any and all of the 2024 CCH Senior Notes for a like aggregate principal amount of debt securities of CCH with terms identical in all material respects to the respective 2024 CCH Senior Notes sought to be exchanged (other than with respect to restrictions on transfer or to any increase in annual interest rate), and that are registered under the Securities Act. Under specified circumstances, CCH and the Guarantors have also agreed, and any future guarantors of the 2024 CCH Senior Notes will also agree, to use commercially reasonable efforts to cause to become effective a shelf registration statement relating to resales of the 2024 CCH Senior Notes. CCH will be obligated to pay additional interest if it fails to comply with its obligation to register the 2024 CCH Senior Notes within the specified time period.

2016 CQP Credit Facilities

In February 2016, Cheniere Partners entered into the $2.8 billion 2016 CQP Credit Facilities, which consist of: (1) a $450.0 million CTPL tranche term loan that was used to prepay the $400.0 million CTPL Term Loan in February 2016, (2) an approximately $2.1 billion SPLNG tranche term loan that will be used to redeem or repay the approximately $2.1 billion of the 2016 SPLNG Senior Notes and the 2020 SPLNG Senior Notes (which must be redeemed or repaid concurrently under the terms of the 2016 CQP Credit Facilities), (3) a $125.0 million debt service reserve credit facility (the “DSR Facility”) that may be used to satisfy a six-month debt service reserve requirement and (4) a $115.0 million revolving credit facility that may be used for general business purposes.

The 2016 CQP Credit Facilities accrue interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of the prime rate, the federal funds effective rate, as published by the Federal Reserve Bank of New York, plus 0.50% and adjusted one month LIBOR plus 1.0%), plus the applicable margin. The applicable margin for LIBOR loans is 2.25% per annum, and the applicable margin for base rate loans is 1.25% per annum, in each case with a 0.50% step-up beginning on February 25, 2019. Interest on LIBOR loans is due and payable at the end of each applicable LIBOR period (and at the end of every three month period within the LIBOR period, if any), and interest on base rate loans is due and payable at the end of each calendar quarter.

Cheniere Partners incurred $48.7 million of debt issuance costs during the six months ended June 30, 2016, and will incur an additional $21.5 million of debt issuance costs when the SPLNG tranche is funded. The prepayment of the CTPL Term Loan resulted in a write-off of unamortized discount and debt issuance costs of $1.5 million during the six months ended June 30, 2016. Cheniere Partners pays a commitment fee equal to an annual rate of 40% of the margin for LIBOR loans multiplied by the average daily amount of the undrawn commitment, payable quarterly in arrears. The DSR Facility and the revolving credit facility are both available for the issuance of letters of credit, which incur a fee equal to an annual rate of 2.25% of the undrawn portion with a 0.50% step-up beginning on February 25, 2019.

The 2016 CQP Credit Facilities mature on February 25, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedging and interest rate breakage costs. The 2016 CQP Credit Facilities contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants and limit Cheniere Partners’ ability to make restricted payments, including distributions, to once per fiscal quarter as long as certain conditions are satisfied. Under the terms of the 2016 CQP Credit Facilities, Cheniere Partners is required to hedge not less than 50% of the variable interest rate exposure on its projected aggregate outstanding balance, maintain a minimum debt service coverage ratio of at least 1.15x at the end of each fiscal quarter beginning March 31, 2019 and have a projected debt service coverage ratio of 1.55x in order to incur additional indebtedness to refinance a portion of the existing obligations.

The 2016 CQP Credit Facilities are unconditionally guaranteed by each subsidiary of Cheniere Partners other than: (1) SPL, (2) SPLNG until funding of its tranche term loan and (3) certain of the subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities.


Credit Facilities

Below is a summary of our credit facilities outstanding as of June 30, 2016 (in thousands):
 
 
2015 SPL Credit Facilities
 
SPL Working Capital Facility
 
2016 CQP Credit Facilities
 
2015 CCH Term Loan Facilities
Original facility size
 
$
4,600,000

 
$
1,200,000

 
$
2,800,000

 
$
8,403,714

Outstanding balance
 
832,695

 

 
450,000

 
2,730,340

Commitments terminated
 
1,287,305

 

 

 
1,050,660

Letters of credit issued
 

 
237,270

 
7,500

 

Available commitment
 
$
2,480,000

 
$
962,730

 
$
2,342,500

 
$
4,622,714

 
 
 
 
 
 
 
 
 
Interest rate
 
LIBOR plus 1.30% - 1.75% or base rate plus 1.75%
 
LIBOR plus 1.75% or base rate plus 0.75%
 
LIBOR plus 2.25% or base rate plus 1.25% (1)
 
LIBOR plus 2.25% or base rate plus 1.25% (2)
Maturity date
 
Earlier of December 31, 2020 or second anniversary of SPL Trains 1 through 5 completion date
 
December 31, 2020, with various terms for underlying loans
 
February 25, 2020, with principals due quarterly commencing on February 19, 2019
 
Earlier of May 13, 2022 or second anniversary of CCL Trains 1 and 2 completion date
 
(1)
There is a 0.50% step-up for both LIBOR and base rate loans beginning on February 25, 2019.
(2)
There is a 0.25% step-up for both LIBOR and base rate loans following completion of the first two Trains of the CCL Project.

Convertible Notes

Below is a summary of our convertible notes outstanding as of June 30, 2016 (in thousands):
 
 
2021 Cheniere Convertible Unsecured Notes
 
2025 CCH HoldCo II Convertible Senior Notes
 
2045 Cheniere Convertible Senior Notes
Aggregate original principal
 
$
1,000,000

 
$
1,000,000

 
$
625,000

Debt component, net of discount
 
$
921,690

 
$
1,109,165

 
$
307,006

Equity component
 
$
203,892

 
$

 
$
194,082

Interest payment method
 
Paid-in-kind

 
Paid-in-kind (1)

 
Cash

Conversion by us (2)
 

 
(3)

 
(4)

Conversion by holders (2)
 
(5)

 
(6)

 
(7)

Conversion basis
 
Cash and/or stock

 
Stock

 
Cash and/or stock

Conversion value in excess of principal
 
$

 
$

 
$

Maturity date
 
May 28, 2021

 
March 1, 2025

 
March 15, 2045

Contractual interest rate
 
4.875
%
 
11.0
%
 
4.25
%
Effective interest rate
 
9.1
%
 
11.9
%
 
9.4
%
Remaining debt discount and debt issuance costs amortization period (8)
 
4.9 years

 
4.3 years

 
28.7 years

 
(1)
Prior to the substantial completion of Train 2 of the CCL Project, interest will be paid entirely in kind. Following this date, the interest generally must be paid in cash; however, a portion of the interest may be paid in kind under certain specified circumstances.
(2)
Conversion is subject to various limitations and conditions.
(3)
Convertible on or after the later of March 1, 2020 and the substantial completion of Train 2 of the CCL Project, provided that our market capitalization is not less than $10.0 billion (“Eligible Conversion Date”). The conversion price is the lower of (1) a 10% discount to the average of the daily volume-weighted average price (“VWAP”) of our common stock for the 90 trading day period prior to the date notice is provided, and (2) a 10% discount to the closing price of our common stock on the trading day preceding the date notice is provided.
(4)
Redeemable at any time after March 15, 2020 at a redemption price payable in cash equal to the accreted amount of the 2045 Cheniere Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to such redemption date.
(5)
Initially convertible at $93.64 (subject to adjustment upon the occurrence of certain specified events), provided that the closing price of our common stock is greater than or equal to the conversion price on the conversion date.
(6)
Convertible on or after the six-month anniversary of the Eligible Conversion Date, provided that our total market capitalization is not less than $10.0 billion, at a price equal to the average of the daily VWAP of our common stock for the 90 trading day period prior to the date on which notice of conversion is provided.
(7)
Prior to December 15, 2044, convertible only under certain circumstances as specified in the indenture; thereafter, holders may convert their notes regardless of these circumstances. The conversion rate will initially equal 7.2265 shares of our common stock per $1,000 principal amount of the 2045 Cheniere Convertible Senior Notes, which corresponds to an initial conversion price of approximately $138.38 per share of our common stock (subject to adjustment upon the occurrence of certain specified events).
(8)
We amortize any debt discount and debt issuance costs using the effective interest over the period through contractual maturity except for the 2025 CCH HoldCo II Convertible Senior Notes, which are amortized through the date they are first convertible into our common stock.

Interest Expense

Total interest expense, including interest expense related to our convertible notes, consisted of the following (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Interest cost on convertible notes:
 
 
 
 
 
 
 
 
Interest per contractual rate
 
$
49,853

 
$
33,603

 
$
98,893

 
$
47,542

Amortization of debt discount
 
9,100

 
7,116

 
17,985

 
13,714

Amortization of debt issuance costs
 
1,254

 
601

 
2,405

 
615

Total interest cost related to convertible notes
 
60,207


41,320

 
119,283

 
61,871

Interest cost on other debt
 
255,853


199,911

 
490,069


359,998

Total interest cost
 
316,060

 
241,231

 
609,352

 
421,869

Capitalized interest
 
(210,093
)
 
(155,745
)
 
(427,048
)
 
(276,771
)
Total interest expense, net
 
$
105,967


$
85,486

 
$
182,304

 
$
145,098



Fair Value Disclosures

The following table (in thousands) shows the carrying amount and estimated fair value of our debt:
 
 
June 30, 2016
 
December 31, 2015
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Senior Notes, net of premium or discount (1)
 
$
13,347,532

 
$
13,447,629

 
$
10,596,307

 
$
9,525,809

CTPL Term Loan, net of discount (2)
 

 

 
398,571

 
400,000

Credit facilities (2) (3)
 
4,028,254

 
4,028,254

 
3,573,000

 
3,573,000

2021 Cheniere Convertible Unsecured Notes, net of discount (4)
 
921,690

 
918,414

 
879,938

 
825,413

2025 CCH HoldCo II Convertible Senior Notes (4)
 
1,109,165

 
1,153,534

 
1,050,588

 
914,363

2045 Cheniere Convertible Senior Notes, net of discount (5)
 
307,006

 
356,250

 
305,938

 
331,919

 
(1)
Includes 2016 SPLNG Senior Notes, net of discount; 2020 SPLNG Senior Notes; 2021 SPL Senior Notes, net of premium; 2022 SPL Senior Notes; 2023 SPL Senior Notes, net of premium; 2024 SPL Senior Notes; 2025 SPL Senior Notes; 2026 SPL Senior Notes; and 2024 CCH Senior Notes (collectively, the “Senior Notes”). The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of the Senior Notes and other similar instruments.
(2)
The Level 3 estimated fair value approximates the principal amount because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty. 
(3)
Includes 2015 SPL Credit Facilities, SPL Working Capital Facility, 2016 CQP Credit Facilities, 2015 CCH Credit Facility and Cheniere Marketing trade finance facilities.
(4)
The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market. 
(5)
The Level 1 estimated fair value was based on unadjusted quoted prices in active markets for identical liabilities that we had the ability to access at the measurement date.